Japanese Government Bonds Are Crashing

Tyler Durden's picture

Ahead of tonight's 10Y JGB auction and reportedly the unleashing of Abe's fiscal stimulus, it appears the world's investors are losing faith in the Bank of Japan's buying power and the MoF's credibility as Japanese government bonds are collapsing for the 3rd day in a row. With the biggest crash in prices (JGB Futures) since May 2013 (back to 5 month lows), yield across the entire JGB curve are exploding higher since Kuroda punted last week and questioned monetary policy effectiveness.

As the world awaits Japan's over-promise and under-deliver fiscal stimulus...



"The fiscal spending will probably include public works spending, so we can expect something of an economic boost," said Masaki Kuwahara, an economist at Nomura Securities Co. in Tokyo. But such growth may not be sustainable. "What Japan needs to do is to spur more demand and increase productivity by pushing through deregulation, increasing the nation’s potential growth rate.”

It appears demand for direct monetization of the debt and questioning BoJ capabilities (and therefore independence)...


One of Prime Minister Shinzo Abe’s top advisers says he favors a declaration by Japan’s policy makers that their current measures are monetizing the nation’s debt.

Some people say that Japan has "already adopted ad hoc monetization of debt, and that to improve public confidence the government and the BOJ should recognize that they are doing already a combination of fiscal stimulus and de facto monetization," Koichi Hamada, a former Yale University professor, said in an e-mailed response to questions.


"Given this long deflation and liquidity-trap type of behavior of Japanese banks and firms, I am now inclined to join the ranks" of those commentators, Hamada said. That view says "piecemeal and de facto monetization should be rather highlighted to change investors’ psychology," he said.


Hamada declined to comment specifically on the Bank of Japan’s July 29 decision to conduct a "comprehensive" assessment of its measures at its next meeting, or whether it’s likely to expand stimulus further at that gathering, which is scheduled for Sept. 20-21.


The adviser also reiterated his opposition to "helicopter money." "If one institutionalizes helicopter money or monetization of the new debt, the economy loses the safeguard against inflation."


Through its easing to date, the BOJ has gobbled up more than one third of outstanding Japanese government bonds, and some observers don’t anticipate that debt will ever return into the hands of private investors. BOJ officials in the past debated a strategy of maintaining a large balance sheet -- at least back in 2014, according to people familiar with the talks at the time. The context then was to avoid any spike in bond yields when the central bank reached its inflation target.

JGB yields are rising on concerns that BOJ’s planned comprehensive assessment of its policy, announced by Kuroda last week, will set back its monetary-easing stance...


Sending bond prices reeling...

This is the biggest 3-day drop since May 2013.

Is this the market pushing back demanding BoJ action... or the rebirth of the widowmaker trade?

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TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) Aug 1, 2016 10:19 PM

Where's my check? - Gojira >:(

Yen Cross's picture

  I gotta get through the RBA interest rate call first , but I think the days of the yen- ¥ being a " safe haven" currency, are rapidly~ coming to an end.

junction's picture

Nomura Securities Co. laid off almost all its traders in the City of London three weeks ago, it couldn't make any money in the rigged system.  Before shutting downn operations, it filed charges against some of its employees for taking company proprietary information with them, an excuse to stiff them out of severance pay and other benefits.  Why anyone would believe anything from someone from Nomura is beyond me.  Or from Goldman Sachs. Or from Yellin. Or from that guy who looks nothing like his Kenyan siblings. 

Yen Cross's picture

  Thanks for the intel.  ;-)

tbd108's picture

"Kenyan siblings" my Aunt Mabel. More like Frank Marshall Davis I believe. And if you don't believe this go to the pictures of his daddy and enjoy.

NoDebt's picture

" the days of the yen- ¥ being a " safe haven" currency, are rapidly~ coming to an end."

I never figured you for an optimist.

Look at those JGB futures prices.  Look at the level they "dropped" to.  You notice something odd about that level, other than the sharp drop-off to recent baseline at the end?


Yen Cross's picture

  NoDebt lol.... I love your brilliant cynical evaluations. You speak the truth, but deliver the message in a very refined way.  H/T ;-)

 I wish we could see all the bad loans that were never cleared off the Japanese bank balance sheets from the late 80's--- early '90's.

 The Japs owned 1/2 of Hawaii and SoCal, back in those days. HaHa

 They[ those loans] were just "monitized" in one of those BoJ > Qe1 ~ Qe infinity programs?


xyzcracker's picture

Is this the end of the carry trade like 1987 ?

Storm Chaser's picture

Yen-carry unwind goes hand-in-hand with the Yen trending up.  And it seems to be doing so since Aug 2015.  Puzzling is the fact that US equities are climbing higher (it should be going lower with Yen-carry unwind).  Said another way, SPX is diverging drastically from USDJPY (when it should be following it).  I haven't seen any explanation by "Tyler" on this...

Mentaliusanything's picture

Smart man here, Yen Cross .. listen .. however quarter of a Big Bull is better than getting Gored.

Light the Weber and make the meat room temperature.

enloe creek's picture

Selling?  or just not buying so the point is made that easing to infinity is a non negotiable policy

LetThemEatRand's picture

I love the smell of falling bonds in the morning.  Cue the helicopters.  

flyonmywall's picture

Jump you fuckers ! 

Here you go. Slit your belly.



Iconoclast421's picture

2% = crash


Now I know why its called ZZZero Hedge



Albertarocks's picture




There, fixed it.

NoDebt's picture

Not on your fucking life.

Mentaliusanything's picture

The average Japanese is way smarter than you think old mate.  Go on short it I dare you. Ingrained stains are very hard to remove.

This is a warning if you have ever done Laundry

froze25's picture

Short the Yen via a ETF, proshares ultra short yen. I think in the short term they will devalue back to 110.

NoDebt's picture

""piecemeal and de facto monetization should be rather highlighted to change investors’ psychology," he said."


"The adviser also reiterated his opposition to "helicopter money." "If one institutionalizes helicopter money or monetization of the new debt, the economy loses the safeguard against inflation.""

BOOM!  That's the sound my head makes when it explodes due to an overload of contradictory and mutually exclusive statements existing in the same time/space continuum.


ebworthen's picture

Get out the wheelbarrows already.

Jim in MN's picture

One should do nothing, and also, upon reflection, do nothing again.

Konichiwa.  No please, you take the last life vest. 

lehmen_sisters's picture

Good advice, u know we live in fucked times when cash in a coffee can and some 90% is the best bet.

conraddobler's picture

Chutuluhu awakens?

I am thinking there is a disturbance in the force and it might pertain to a certain pin being pulled from a certain grenade which will then kickoff the real show.

A good ole fashioned bond crash facilitated by the PPT crew sitting on their hands so we can kickoff the real shitshow to end all shitshows?

Or it's just a thing and it'll pass?

Interesting times.

gregga777's picture

Oh, yes, by all means the Bank of Japan should most definitely follow the advice of the "experts". The "experts" have delivered such wonderful and effective advice since the bursting of the Japanese Bubble in 1990. Why, what ever would the world do without all of the "experts" and their God-like abilities? Why, I'm sure that we would all be lost. Yes, lost! Thank God for all of the "experts" and their wonderful and effective advice. /sarc

gwar5's picture

Kyle Bass really knew what he was talking about couple years ago when he was saying Japan would be first to go tits up.

Yen Cross's picture


  It's all about margin management, and laying low. Japanese yields are negative, so it doesn't cost me anything to keep a few forks in the fire.

  Keep an eye on aud/jpy and gbp/aud over the medium term.

bankonzhongguo's picture

The only red flag here is since each of these central banks are involved in a mutually assued circle-jerk - buy each others debt and other asset classes as cut-outs - then it seems to reason that japanese debt buyers taking the red pill might be the catalyst to price yields toward that 1.5% increase everyone claims is Aragemdon for equities.

But frankly who gives a hang.

All the QEtype games for nearly 10 years(!) pump free money out to the players to keep spinning their records and buying bunkers in wine country to the tune of $60 billion a month.

Everyone else is watching their purchasing power vaporize in a decade.

"Normal folks" will be on line for frozen chicken and obomba phones in 2 years.

At least I live close to the food.

shamus001's picture

Makes me think of our "wonderful" targeted interest rates. Was just thinking today, if not for inflation, you would buy your house 20 years ago for X, and sell it 20 years later for say X-10-30% depending on its condition & ammeneties. 

BUT with INFLATION, you sell it 20 years later, at 100% increase of what you paid (if not 2-300%) OF INFLATED DOLLARS that purchase 2-300% less, BUT with the added "D1cking" that you will now pay the government 40% capital gains tax on the sale, which in inflation adjusted terms, YOU LOST MONEY ON!!!!

But now BIG UNCLE cuts your returns in HALF, by taxing gains THAT ARE NOT REALLY THERE!

css1971's picture

Why stop at houses?

That is "The System" pretty much in toto.

Storm Chaser's picture

"Is this the market pushing back demanding BoJ action" What "market"?  If BoJ is the only substantial buyer of JGB anymore (and it can buy with unlimited money created out of thin air), why would yield go up?

Fogey's picture

Just read that the japanese Government will hand out $150 each to 22 million low-income people.